Dual or Variable Rate Commission?
Most if not all Florida MLSs provide participants a way to disclose whether their listing agreement for sale or rent contains a dual or variable rate commission arrangement. However, many members don’t fully understand the “dual or variable rate” definition.
ORLANDO, Fla. – The National Association of Realtors®’ Code of Ethics obligates all Realtors to disclose the existence of dual or variable rate commission arrangements to cooperating brokers as soon as practical. Most MLSs enable participants to make this disclosure when completing an MLS entry form.
What is a “dual or variable rate” commission arrangement? It’s defined in Article 3, Standard of Practice 3-5, as “listings where one amount of commission is payable if the listing broker’s firm is the procuring cause of sale/lease and a different amount of commission is payable if the sale/lease results through the efforts of the seller/landlord or a cooperating broker.”
Under these agreements, the property owner typically owes less commission if the listing broker handles both sides of the transaction, and a higher commission if another brokerage firm procured the buyer or tenant. Technically, it could also apply if the owner has agreed to pay more if the listing broker has both sides, although those types of listing arrangements are extremely rare.
Now that we’ve looked at the correct definition from the Code of Ethics, what’s the wrong definition?
Many members think that it’s when the amount of compensation the listing broker receives is different from the amount offered to the cooperating broker. When the cooperating broker discovers this – often when they see it on a closing statement – they think it’s an undisclosed dual or variable rate. But it isn’t.
A dual or variable rate is analyzed solely from the seller’s perspective: Do they owe a different amount if the listing broker handles both sides? In this example, no. The amount the listing broker gets and the amount the cooperating broker gets are different. However, the total amount the seller owes is the same, regardless of whether the listing broker has both sides or not.
Is it okay for a seller and listing broker to agree to this uneven split? Yes. The listing agreement and amount of commission described in it is negotiable, so those terms are up to them.
What can a buyer’s representative do if they believe the amount offered is too low? In short, they can ask the buyer or listing broker if either is willing to add commission. NAR provides a more detailed article about a buyer’s broker negotiating commissions on its website.
This rule actually describes a total of three possible disclosures. The first disclosure, which we already covered, is the listing Realtor’s obligation to disclose the general existence of this arrangement when the amount the seller owes is different when the listing broker represents both sides. That’s where the MLS checkbox “dual or variable rate” comes in to help with compliance.
The second disclosure only kicks in if a cooperating broker asks what the difference is. When that happens, the listing member must provide a number showing the actual difference. For example, if a cooperating broker asks what the difference is, the listing side would need to respond with a statement like “seller will owe X% less (or $Y less) if our company has both sides of the transaction.”
The third and final disclosure is from the perspective of the buyer or tenant representative. Once they know the difference, they’re obligated to pass this information on to their client. This way, their client has full disclosure that an identical offer from them and a buyer or tenant represented by the listing brokerage will net the seller a different amount of money due to the commission differential.
Joel Maxson is Associate General Counsel for Florida Realtors
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